Two interesting opinion pieces in the Washington Post gave complementary perspectives on the UMass opposition to the Federal Tax Reform package. Both opinion pieces focus on the House of Representatives’ proposal of taxing graduate student waivers.

The first, by vice provost David Nirenberg at the University of Chicago, highlights the critical role that graduate students play in American prosperity.  Interestingly, he specifically calls out universities for not doing “a very good job of explaining the importance of graduate education to society.”  The second, by graduate student Sarah Arveson at Yale, argues that the charging and subsequent waiving of tuition that would now be taxed is part of a Yale University “pretense” that graduate students “are students liable for tuition, rather than employees, creating value for the institution and our fields of knowledge.”

I think some explanation is in order and since one of the assignments in David Landon’s Archaeological Methods graduate class was a proposal that includes a budget, I thought I would use these opinion pieces about the potential tax package as an opportunity to talk about some of my favorite subjects: grants and budgeting, and how they relate to tuition waivers.

There is some logic to the tuition and waiver process.  That process takes into account that the resources for students come from a variety of sources including grants, university funds, and endowment funds.  There is lots of room for improvement in how we budget and account for grant money, and the way we explain that to students. But the basic premise of tuition and waivers does work across educational institutions, whether in underfunded small state schools or large well-endowed private schools.  To make the system work, the tuition and waivers are variable, and they can be cobbled together in many different combinations.

Some funding agencies, across the spectrum of private, local, state, and federal, require cost matching or cost sharing to be eligible for their grants.  In these grants, a university would have to pay, or get from some other source, 10 to 50% of the budget.  Conversely, some agencies prohibit cost sharing (what the National Science Foundation calls “voluntary committed cost sharing”) so that the full cost of the grant is obvious.  Prohibiting cost sharing can help to reduce the advantage of richer schools in getting grants.  However, cost sharing demonstrates a university’s commitment to the specific research enterprise.  Often, the university uses tuition waivers as a portion of cost sharing.

Funding agencies also have overhead rates, sometimes referred to as “facilities and administration” or “indirect costs”.  Overhead is a part of the budget of a project, but is not used directly for the project but goes to the university to keep the lights on and fund other general expenses, that would be prohibitive to enumerate in a project budget.  Overhead rates vary dramatically; for some nonprofits the university rate can be as low as 10% but can be as high as 100% of the direct budget costs.  Overhead rates also depend on where most of the work is performed–on or off campus.  A small portion of the overhead may be given to the recipient and/or their department for other research expenses not outlined in the budget.  Generally, tuition waivers, while part of the direct costs, are not included in the total grant cost from which the overhead is calculated.

In a 1995 paper, that folks interested in grant budgets will find enthralling, Carol Gruber argues that the practice of universities contracting with the government, and the resulting overhead that came out of the “no-profit-no-loss” for universities approach, profoundly altered the research university landscape. The contract for research approach that provides overhead, an arrangement that was created during World War II, has helped to create the US university system as we know it today.  The principle behind no-profit-no-loss fits right into a university’s nonprofit status and like it or not—and Arveson clearly does not like it—students are part of that nonprofit approach.  Taxing graduate students’ tuition waivers is not just cruel to graduate students and harmful to academic pursuits, but a fundamental rebuke to the no-profit-no-loss university-government contracting relationship that was born out of the Manhattan Project.

 

Carol Gruber
“The Overhead System in Government-Sponsored Academic Science: Origins and Early Development”
Historical Studies in the Physical and Biological Sciences Vol. 25, No. 2 (1995), pp. 241-268

 

 

UPDATE:  December 17, 2017 –
The final draft of the Republican tax bill kills a proposed tax on tuition waivers.